No-Poaching Agreement Results in First-Ever Criminal Charges
Author: Robert S. Teachout, XpertHR Legal Editor
February 1, 2021
The US Department of Justice (DOJ) has filed criminal charges for the first time against a company for using an employee no-poaching agreement. A federal grand jury returned a two-count indictment charging Surgical Care Affiliates LLC (SCA) for agreeing with competitors not to solicit senior-level employees from each other. SCA owns and operates outpatient medical care centers across the country.
A no-poaching agreement is an agreement between employers and businesses not to recruit certain employees or not to compete on compensation terms.
The charges demonstrate the DOJ's commitment to criminally prosecute collusion in the US labor market, according to Makan Delrahim, Assistant Attorney General in DOJ's Antitrust Division. "Along with our law enforcement partners, the [DOJ] will ensure that companies who illegally deprive employees of competitive opportunities are not immune from our antitrust laws."
In 2016, the DOJ and the Federal Trade Commission (FTC) issued joint guidance warning HR professionals that no-poach and wage-fixing agreements violate federal law. The agencies said educating and informing HR professionals about how the antitrust laws apply to the employment arena was important because they are in the best position to ensure their companies' hiring practices comply with the law.
The guidance stated that such agreements are subject to civil penalties and that the agencies intended to bring future enforcement actions for antitrust law violations. More notably, the guidance also warned for the first time that the DOJ would "proceed criminally against naked wage-fixing or no-poaching agreements."
DOJ initiated its first civil enforcement action of the guidance in 2018 against two of the world's largest rail equipment suppliers, which competed with each other "to attract, hire, and retain various skilled employees." The complaint alleged that the companies had engaged in an illegal no-poach agreement with each other and, later, with a third rail equipment supplier. In the settlement agreement, the DOJ made clear that it considers no-poach agreements to be inherent violations of antitrust law, even if there is no actual anticompetitive harm.
The DOJ asserted that it had not pursued criminal charges in the earlier civil case because the agency had discovered the no-poach agreements - and the companies had ended them - before the October 2016 guidance had been issued. But, the agency also had indicated - and, with the SCA indictments, has shown - that agreements made or discovered after the October guidance was issued are more likely to face criminal prosecution.
"Private class actions and governmental enforcement actions over use of no-poach agreements are on the rise, and this type of litigation is expected to increase in the next four years with the Biden Administration's priorities at the U.S. Department of Justice," Gerald Maatman, a partner in Seyfarth Shaw's Chicago office, told XpertHR. "Employers should carefully consider and implement such agreements with an eye toward compliance and litigation risks."